Asia's Future Prosperity Requires Major Change in Energy Use

HONG KONG, CHINA - Asia is moving along a dangerously unsustainable energy path that will result in environmental disaster and a gaping divide in energy access between rich and poor unless the region dramatically changes course, says a new Asian Development Bank (ADB) report.

"Asia could be consuming more than half the world's energy supply by 2035, and without radical changes carbon dioxide emissions will double," said ADB Chief Economist Changyong Rhee. "Asia must both contain rising demand and explore cleaner energy options, which will require creativity and resolve, with policymakers having to grapple with politically difficult issues like fuel subsidies and regional energy market integration."

Asia's Energy Challenge, the special theme chapter in ADB's Asian Development Outlook 2013 (ADO 2013) released today, highlights the complex balancing act the region faces to deliver energy to all its citizens while scaling back its reliance on fossil fuels.

If by 2035 Asia merely expands energy access without fundamentally changing the way it consumes, the report predicts the region's oil consumption will double, natural gas consumption will triple, and coal consumption will rise a whopping 81%, with costly and devastating environmental impacts.

Asia's limited indigenous energy resources present an additional challenge. With only 9% of proven global oil reserves, the region is currently on track to almost triple oil imports by 2035, rendering it significantly more vulnerable to external supply shocks.

In Asia, 1.8 billion people still rely on wood and other traditional fuel as their primary energy source. Since modern energy access is essential for their social and economic advancement, Asia must find the political will and innovation to scrap outdated policies and recalibrate its energy mix. For one, policymakers will need to replace general fuel subsidies that artificially lower the cost of power and impose huge fiscal burdens with targeted subsidies for the poor. The report suggests eliminating wasteful subsidies worldwide would also lower CO2 emissions by 2.6 billion tons in 2035.

Carefully designed support for renewable energy technologies must be stepped up. Next generation wind, solar and biofuel technologies, which are expected to be more cost competitive than current options and do not compete with food crops, offer potential solutions.

Asia has great potential in shale gas, with the PRC having the world's largest endowment. But technical uncertainties such as leakage and water contamination must be addressed. The Fukushima disaster powerfully underscored the risks of nuclear power, but a phase out would see a sharp spike in fossil fuel use. A far greater focus on green, energy efficient cities and transport systems, along with scaled up research into clean energy, are equally critical.

Countries cannot meet all their power requirements on their own, so Asia must accelerate cross-border interconnection of power and gas grids to improve efficiency, cut costs, and take advantage of surplus power. With increased cooperation, a pan-Asia energy market is achievable by 2030, the report says.

Ensuring the poor are not left out will require policies to secure an adequate energy floor for low income earners, and the development of effective off-grid power supply options for remote communities. Narrowing the energy divide between richer and poorer countries requires targeted international aid to build power infrastructure which benefits the less well off.

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